The latest annual Medicare trustees report highlights the program’s growing fiscal challenge and reflects policymakers’ ongoing failure to prepare Medicare for the future. Medicare’s Hospital Insurance trust fund becomes insolvent in 2026, but the program is already in trouble from a budget perspective. More than $300 billion in general tax revenue was needed in 2018 to help fund $740 billion in Medicare spending. Bipartisan legislation will be needed to put the program on a sound basis for future generations. One starting point could be proposals advanced in the president’s budget and other reforms to improve the functioning of traditional fee-for-service Medicare. Adopting premium support, which converts the current uncapped subsidy to a defined contribution, would eliminate the fee-for-service incentives that drive up spending unnecessarily. Such a reform is controversial but less dramatic than many think.
AEI economist Benedic N. Ippolito testified before the Senate HELP Committee on the Lower Health Care Costs Act. Ippolito applauded the bipartisan effort to “meaningfully increase competition and transparency in health care markets…lowering costs would also improve access to health care.”
Medicare for All has become a litmus test in the Democratic Party, but some leaders — including House Speaker Nancy Pelosi and former vice president and current presidential candidate Joe Biden — are wary of the political consequences of stripping private insurance from the 180 million people enrolled in job-based coverage. They are pushing a “public option” as a less threatening alternative.
A public option is sold as less disruptive than Medicare for All but it would have similar results, and a similar destination. If enacted, private insurance would wither, competition would decline, innovation would slow, and the costs of health coverage would be hidden inside ever-rising tax bills.
What is a more limited-government, pro-market (not simply pro-business) health policy reformer supposed to do? There are plenty of other short-term poses one might adopt. Accept a lot of givens as too politically difficult to challenge and then suggest quarter-way compromises that slow the pace of retreat. Or try procedural sidesteps that alter the venue of policy development (let the states do it!), without greater guarantees than what shuffling a somewhat altered deck of cards with a different set of political intermediaries offers. Or propose new tricks of manipulating magic money from somewhere else (reinsurance, reshuffled subsidies, formulaic reimbursement and benefit cuts) in the further away future.
Surprise medical billing—cases in which patients are unexpectedly billed at highly inflated prices from providers who do not accept their insurance—has attracted policymakers’ attention. In this report, we outline the economic rationale for why markets have not eliminated this behavior and present policy solutions. We emphasize that much of this phenomenon can be solved via contract reforms that require health care providers to negotiate market prices among themselves. This strategy produces market outcomes and minimizes the risks associated with rate regulation. Targeted rate caps should be considered only in cases in which contractual reforms are not feasible.
In response to a request from Sen. Lamar Alexander (R-TN), chairman of the Senate Committee on Health, Education, Labor, and Pensions, health policy experts at the American Enterprise Institute and the Brookings Institution worked together to compile a list of policy options to slow the rate of increase of health care costs and attract bipartisan support. Among the key policy proposals:
- Limit the tax exclusion of employer-sponsored insurance
- Ensure effective anti-trust enforcement
- Discourage state governments from inhibiting free market competition
- Prevent surprise out-of-network billing
- Encourage the use of more generic drugs in Medicare Part D
American consumers and policymakers are increasingly concerned about the high cost of prescription drugs. According to the Kaiser Family Foundation, one in four people taking prescription drugs report difficulty affording their medication. There is bipartisan support for policies that could help lower drug prices and their burden on consumers. Legislation has been introduced and regulatory actions have been advanced to promote competition among drug manufacturers and slow the growth of prices.
The single-payer health insurance proposal known widely as Medicare for All (M4A) cannot be enacted without first answering certain questions. Foremost among these is whether the public would support shifting more than $32 trillion in M4A’s first 10 years from private health spending, over which consumers retain some discretion, to federal health spending, over which consumers do not. A related open question is whether the federal government can adequately finance this amount of spending without triggering significant adverse economic effects. Other unanswered questions include M4A’s effects on health providers, the prescription drug market, and private health insurance. M4A would add further to national health cost growth unless provider reimbursements are cut more sharply than lawmakers have been willing to do historically. Yet the consequences of enacting such payment cuts simultaneously with a substantial increase in health service demand are unpredictable.
Consider what the average American thinks they hear about “Medicare for All.” They probably think everyone would get the same Medicare coverage currently going to their parents and grandparents. Not so. Despite the clever branding, the Medicare for All plan that Harris has supported is actually a universal coverage plan that covers more services than Medicare while eliminating deductibles, co-insurance, and co-pays. Indeed, once more Americans hear about Medicare for All, they might start wondering how total healthcare spending would be the same or ever less under such a regime.
For several months, the Trump administration has been engaged in an internal debate over the merits of allowing states to partially expand Medicaid under the terms of the Affordable Care Act (ACA). Now, after losing the House to Democratic control (and thus also losing any opportunity to repeal and replace the ACA until at least 2021), the administration is said to be ready to make a decision in favor of allowing partial Medicaid expansion to proceed under state waiver requests.